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China’s foreign reserves hit $2,399bn
Published on: 2010-01-18
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China’s foreign exchange reserves, by far the largest in the world, rose by $126.5bn in the fourth quarter of last year to hit $2,399bn (€1,669bn, £1,477bn), the country’s central bank said on Friday.


The country’s continued accumulation of foreign exchange is likely to provide ammunition to trading partners who complain that it is pursuing mercantilist policies by keeping its currency pegged at an artificially low rate to the US dollar.


The reserves returned to steady growth in the second half of last year after a period of volatility and even brief decline at the end of 2008 and start of 2009 caused by currency fluctuations and a collapse in Chinese exports.


For the entire year, China added $453bn to the reserves, $35bn more than the increase in 2008. While the reserves grew by just $10bn in December, compared with $56bn and $60bn in the previous two months, analysts said that was largely due to revaluation effects caused by falls in the euro and yen last month.


“The strong increase in reserves clearly doesn’t help in terms of relieving pressure on China to revalue its currency,” said Qu Hongbin, chief China economist at HSBC.


“The increasing risk of overheating and a fast rebound in CPI inflation combined with the stronger-than-expected recovery in exports will all result in rising pressure for renminbi appreciation in the coming months.”


The central bank also said on Friday that bank loans in China rose by Rmb380bn ($55.6bn) in December, bringing the total amount of new loans issued last year to Rmb9,590bn.


That was more than double the amount of new loans extended in 2008, an unprecedented easing in financial conditions that resulted from government orders to state-owned banks to flood the economy with easy credit in order to revive growth in the face of the economic crisis.


The lending binge helped China beat the 8 per cent annual gross domestic product growth target set by the government at the start of last year, but at the cost of what many analysts believe are burgeoning asset bubbles, particularly in the property market, and a growing risk of inflation.


“If this excessive liquidity is combined with an export recovery and a possible growth overshoot in China to more than 10 per cent, then potential inflation is likely to turn into real inflation,” Mr Qu said.


On Tuesday the central bank raised the required amount that banks must hold in reserve in what many analysts interpreted as a signal to banks to slow the pace of lending in the first part of the year, when loans traditionally surge.

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